In this
civil action, plaintiff American Dairy Queen Corporation
("ADQ") seeks a declaratory judgment that it
properly terminated the relationship with the defendant
Universal Investment Corporation under the provisions of the
Wisconsin Fair Dealership Law, Wis.Stat. § 135.01 et
seq. ("WFDL"), that Universal violated the
Lanham Act, 15 U.S.C. §§ 1141, 1125(a)(1), by using
the DAIRY QUEEN® trademark without maintaining brand
standards. For its part, Universal asserts counterclaims
against ADQ for tortiously interfering with a prospective
contract to purchase DAIRY QUEEN® territory rights in Eau
Claire County, Wisconsin, as well as violations of the WFDL.
Although the WFDL would appear to dictate the ultimate
outcome of this lawsuit, pending before the court are: (1)
Universal's motion for partial summary judgment on
ADQ's Lanham Act claim as barred by the doctrine of
laches (dkt. #31); and (2) ADQ's motion for summary
judgment on Universal's tortious interference
counterclaim based on privilege and justified interference
with the transfer of territory rights (dkt. #43). For the
reasons that follow, the court will grant in part and reserve
in part Universal's motion, finding that laches bars a
Lanham Act claim premised on pre-October 2015 trademark
violations, while also finding that material issues of fact
concerning ADQ's WFDL claim precludes summary judgment
after that date. For similar reasons, the court will enter
judgment in ADQ's favor on Universal's tortious
interference claim, finding that this defense applies here.

American
Dairy Queen Corporation ("ADQ") is the franchisor
and owner of the DAIRY QUEEN® franchise system. ADQ
licenses its trademarks to third parties who operate and/or
sublicense restaurants under that name. There are currently
6, 700 DAIRY QUEEN® restaurants operating in the United
States and abroad, including 132 in Wisconsin.

Historically,
ADQ has licensed franchisees in two ways: (1) through
"territory operators" who take the responsibility
for issuing sublicenses to individual stores in a specified
territory and for supervising the stores; and (2) through
licensees that contract directly with ADQ to operate stores
who are supervised directly by ADQ. The second approach is
now ADQ's preferred business model. Indeed, ADQ has not
entered into an agreement with a new territory operator for
more than twenty-five years.

Universal
Investment Corporation operates a restaurant in Eau Claire,
Wisconsin, on Menomonie Street under the DAIRY QUEEN®
name and sells soft serve treat products using the DAIRY
QUEEN® trademark. John and Maureen (also known as
"M.M.")[2]Robertson are husband and wife, and they
remain the sole owners of Universal. John Robertson began
working in the first Dairy Queen in Eau Claire County while
in high school. In 1973, he entered into an agreement with
the former territory operators, Walter and Opal Stephen, to
operate that Dairy Queen location himself. Initially in their
own names and more recently as the sole owners of Universal,
the Robertsons have operated that Menomonie Street DQfor more
than forty years.

While
not a party to this action, Stephen Partnership, a Wisconsin
general partnership, located in Eau Claire, Wisconsin, is
central to the parties' dispute. Stephen Partnership is
the successor in interest to Walter and Opal Stephens, and it
is a former ADQ licensee and territory operator for Eau
Claire County, Wisconsin. The Robertsons (and later
Universal) have continued to maintain the same basic
sublicense arrangement with Stephen Partnership for the
Menomonie Street DQ that began with the Stephens in 1973.

B.
History of Territory Agreements Between ADQ and Stephen
Partnership

Similarly,
through a series of their own written agreements (referred to
generally as "territory agreements") between ADQ
and Stephen Partnership (or their respective predecessors),
Stephen Partnership maintained its license to operate and
sublicense DAIRY QUEEN® stores that sell DAIRY QUEEN®
products in Eau Claire County, Wisconsin, between 1955 and
2014. Lark Sales Company, a predecessor of ADQ entered into
the first of the territory agreements with Walter G. Stephen
and Opal R. Stephen, the predecessors of Stephen Partnership,
granting a license to operate and sublicense DAIRY QUEEN®
restaurants that sell DAIRY QUEEN® soft serve products in
Eau Claire County (the "1955 Territory
Agreement").[3] (Beck Decl., Ex. A (dkt. #47-1).) ADQ and
Opal Stephen entered into a subsequent Food Service Addendum,
dated September 16, 1982 (the "1982 Addendum"), for
the operation and sublicensing of DAIRY QUEEN®
restaurants using the DAIRY QUEEN® BRAZIER®
trademarks in Eau Claire County, Wisconsin. (Beck Decl., Ex.
B (dkt. #47-2).) At that time, ADQ also licensed the DAIRY
QUEEN® BRAZIER® marks in connection with ADQs food
service system and the sale of cooked food products such as
hamburgers, hot dogs, french fries and other food products.
(Id. at App. D.)

Important
to the current dispute, the 1982 Addendum included an
Appendix G that reflected an agreement between Walter G. and
Opal R. Stephen and Burton Myers, made on January 31, 1959,
granting the Stephens a license to use the trade name
"Dairy Queen" under the "Trade Mark
Registrations #4163, 6524, and 6825 as registered with the
Department of State for the State of Wisconsin" (the
" 1959 Agreement"). (Id. at App. G.) The
1982 Addendum also affirmed that the 1955 Territory Agreement
"shall remain in full force and effect in accordance
with its terms, " including the subsequent rights as
described in Appendix G. (Id. at § 1.7.) The
1982 Addendum further explained that if there was an
inconsistency between the 1982 Addendum and the 1955
Territory Agreement as it related to dairy products, the 1955
Territory Agreement governed. (Id.)[4]

As the
territory operator, Stephen Partnership (or its predecessors
in interest) had the apparent authority to -- and did --
enter into sublicenses for the operation of DAIRY QUEEN®
restaurants in Eau Claire County. Beginning in 1973, there
can be no reasonable dispute that John Robertson initially
and Universal most recently relied upon the agreements with
the Stephens initially and Stephen Partnership most recently
to operate one or more Dairy Queen stores in Eau Claire. Most
notably, in 2000, Universal and Stephen Partnership entered
into a sublicense agreement.[5] Under that sublicensee
relationship, Universal had the right to sell soft serve
products under ADQs trademarks, but it did not have the right
to sell food offerings under ADQ's trademarks. Universal
could also sell food though that was not packaged with
ADQ's trademarks.[6]

C.
Stephen Partnership's Default and 2014 Lawsuit

On
February 15, 2013, ADQ issued a Notice of Default to Stephen
Partnership for failure to submit monthly store reports and
pay monthly royalty and sales promotion fees, along with
accrued interest from September through December 2012. (Beck
Decl., Ex. C (dkt. #47-3).) The notice also informed Stephen
Partnership that it had sixty days from receipt to cure these
defaults. On May 8, 2013, ADQ extended this cure period until
May 15, 2013, and issued a Notice of Termination, effective
August 6, 2013, if Stephen Partnership failed to cure timely.
(Id., Ex. D (dkt. #47-4).) Because Stephen
Partnership failed to cure, ADQ formally advised on June 7,
2013, that its rights under the 1982 Addendum and 1955
Territory Agreement would terminate effective August 6.
(Id., Ex. E (dkt. #47-5).) On September 28, 2013,
John Robertson also received a letter from ADQ which informed
Universal that Stephen Partnership's territory rights had
been terminated and that Universal was now considered a
direct-licensed restaurant with ADQ.

On
March 24, 2014, ADQ further filed a lawsuit against Stephen
Partnership in the Western District of Wisconsin, seeking a
declaratory judgment that it had validly terminated the 1982
Addendum, as well as asserting affirmative claims against the
partnership under the Lanham Act for alleged unauthorized use
of ADQ's trademarks post-termination and for breach of
contract based on unpaid fees under the 1982 Addendum.
Am. Dairy Queen Corp. v. Stephen P'ship, No.
3:14-cv-00218-wmc (W.D. Wis. Mar. 24, 2014). (See
also Beck Decl., Ex. H (dkt. #47-8).) The parties to
that lawsuit entered into a settlement agreement, which
became effective December 1, 2014 (the "Settlement
Agreement"). (Beck Decl., Ex. I (dkt. #47-9).) Under the
terms of that agreement, all of Stephen Partnership's
"rights, title and interests" under the 1955
Territory Agreement, 1982 Addendum, and Appendix G to the
1982 Addendum (which includes the 1959 Agreement) were
"terminated and thereby revert to ADQ."
(Id. at ¶¶ 7, 9-10.) The Settlement
Agreement also provided that Stephen Partnership's rights
as a licensor with Universal were transferred to ADQ.
(Id. at ¶ 8.)

D.
Robertsons' Interest in Acquiring Territory
Rights

In
January 2014, approximately three months after being advised
that ADQ had purportedly terminated Stephen Partnership's
territory rights under the agreement and two months before
the filing of the lawsuit between ADQ and Stephen
Partnership, the Robertsons became interested in acquiring
DAIRY QUEEN® territory rights in Eau Claire County. As
John Robertson testified at his deposition, he believed the
territory "was a valuable commodity to us and [we] were
interested in buying it and [Stephen Partnership was]
interested in settling it." (J. Robertson Depo. (dkt.
#58) 83.) That same month, the Robertsons met with Stephen
Partnership's owner, Sandra Stephen-Bailie, to discuss
terms of a purchase, including general payment terms for
Stephen Partnership's DAIRY QUEEN® territory rights
in Eau Claire County.

Over
the course of the next couple of months, the Robertsons and
Stephen Partnership, through counsel, agreed generally to a
$250, 000 upfront cash payment, payments of $850 monthly
(increasing after six years) and "up to $75, 000"
in relation to "potential liability" for ADQ's
lawsuit. (J. Robertson Depo. (dkt. #58) 85-86.) In May 2014,
the parties even exchanged a draft contract to purchase all
or a part of Stephen Partnership's DAIRY QUEEN®
territory rights in Eau Claire County. That draft contract
was between M.M. Robertson and Stephen Partnership. Universal
was not a party to the prospective contract, though defendant
points out that the contract was with "M.M. Robertson,
doing business as DAIRY QUEEN OF EAU CLAIRE COUNTY, or
assigns." (See, e.g., Mirr Decl., Ex. 4 (dkt.
#83-4) p.l, Art. 5 (emphasis added).) Universal also contends
that "M.M. Robertson acted as the agent of Universal
Investment Corporation in offering to purchase the Stephens
Partnership Territory." (Def.'s Add'l PFOFs
(dkt. #80) ¶ 5.) Still, there is no dispute that the
proposed contracts did not specifically name Universal as a
party.

On July
9, 2014, the Robertsons and Stephen Partnership circulated
what Universal characterizes as the "final" draft
of purchase contract, with the goal of signing it two days
later on July 11, 2014.[7] However, the parties did not sign the
agreement on that date; to the contrary, the record reflects
ongoing changes to the prospective contract. (Pl.'s Resp.
to Def.'s Add'l PFOFs (dkt. #101) ¶ 20.)

Sometime
later in July, ADQ apparently became aware of the proposed
sale, and alerted Stephen Partnership's counsel that: (1)
ADQ would have to consent to any sale of its territory rights
and (2) Stephen Partnership would need to submit the proposed
agreement for it to make that determination. (Stephen-Bailie
Depo., Ex. 77 (dkt. #61-2) 18.) In a July 14, 2014, email to
the Robertsons' counsel, counsel for Stephen Partnership
characterized this consent requirement as the "right to
veto the transfer." (Mirr Decl., Ex. 7 (dkt. #83-7) 5.)
The email also advised that "ADQ would not approve of
[the Robertsons] as the Territory Operator."
(Id.) In response, the Robertsons and Stephen
Partnership discussed restructuring the proposed deal to have
M.M. Robertson purchase 99 shares of Stephen Partnership,
leaving it with one share.[8] However, Stephen Partnership's
counsel sent an email to Robertsons' counsel on October
16, 2014, advising that even with this change to the deal,
ADQ "will challenge any transfer whereby my client is no
longer in control of the territory." (Id., Ex.
8 (dkt. #83-8) 4.)

The
Robertsons' negotiations with Stephen Partnership on the
prospective contract continued through November 2014, but on
December 19, 2014, Stephen Partnership advised the Robertsons
in writing that "[u]nfortunately due to the extreme
exposure of the ADQ lawsuit, my client has decided to settle
the case with ADQ and will not be selling the territorial
rights to the Robertsons." (Rotchadl Decl., Ex. C (dkt.
#76-3).) As a result, a final agreement between the
Robertsons and Stephen Partnership was never reached.

Our website includes the first part of the main text of the court's opinion.
To read the entire case, you must purchase the decision for download. With purchase,
you also receive any available docket numbers, case citations or footnotes, dissents
and concurrences that accompany the decision.
Docket numbers and/or citations allow you to research a case further or to use a case in a
legal proceeding. Footnotes (if any) include details of the court's decision. If the document contains a simple affirmation or denial without discussion,
there may not be additional text.

Buy This Entire Record For
$7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.